Luxembourg

   

Economic Policies

#8
Key Findings
Recovering swiftly from a series of financial-sector setbacks, Luxembourg receives a high overall ranking (rank 8) for its economic policies. Its score on this measure has improved by 0.6 points since 2014.

International agreements have forced new transparency on Luxembourg’s famously secretive banks, while partially undermining the country’s ability to offer preferential tax-incentive deals and e-commerce VAT rates. New business areas are being sought to make up for lost revenue. The country is no longer listed as a tax haven by the Global Forum.

Growth has been steady and strong. Unemployment rates are moderate and declining, with cross-border commuters accounting for a very high share of the workforce, enabling a high degree of flexibility. Employment rates among workers 55 and older are very low by EU standards.

VAT rates have been increased in response to new EU rules. Most global companies negotiate agreements that exempt them from corporate-income and other taxes. Deficits are mild and sustainable. Recent investments and bank bailouts have increased debt, though absolute levels remain low. Considerable resources are being spent to develop the R&D sector.

Economy

#4

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
8
Ten years after the outbreak of the financial crisis, the financial markets regained trust and the economy strong growth. In particular for Luxembourg’s exports and services, the euro zone’s economic recovery has resulted in stronger GDP growth than before the crisis. The economy of the Grand Duchy is strengthening, domestic demand is increasing and the workforce is expanding. In the second quarter of 2017, GDP grew by an impressive 4%. In 2016, the real GDP growth rate was 4.2%, higher than the average euro zone growth rate and an increase of 0.2% compared to 2015 (4%).

Following learning from the crisis, the small country is now well prepared to master the challenges posed by the global market by developing long-term business synergies that take into account the future consequences of digitalization. The government is more consequently promoting start-ups and spin-offs. Luxembourg’s university is growing and developing infrastructures for new research on topics such as big data. Brexit is expected to particularly benefit the country’s insurance sector. Behind Dublin and Frankfurt, Luxembourg holds third place on relocations resulting from the 2016 Brexit referendum. Six financial entities have announced plans to settle in Luxembourg. The ongoing debate on tax rules and transparency will be significantly impacted by the recent U.S. corporate tax reform. 10,909 offshore companies (sc. letterboxes not engaged in any genuine or effective business, arising from 81 bilateral tax treaties) in all tax havens of the world are or were connected to Luxembourg. The deep mistrust that dominates the debate about tax avoidance can only be overcome by public disclosure and coherent supranational tax policies.

Luxembourg is a small and open economy. For some time, it has ranked highly on international competitiveness indexes. Similar to last year, Luxembourg was ranked 19th out of 140 countries in the International Institute for Management Development’s index (World Economic Forum, 2017). Luxembourg also ranked highly on macroeconomic environment (7th position), goods market efficiency (4th position) and technological readiness (1st position). However, Luxembourg underperformed in higher education and training (50th position) and health and primary education (41st position), which are important drivers of economic competitiveness and job creation. Furthermore, Luxembourg airport is the 7th biggest cargo hub within Europe and is home to Europe’s largest all-cargo airline Cargolux.

Since 2015, changes to EU legislation regulating VAT rates across the EU reduced Luxembourg’s VAT revenue from e-commerce. Following negotiations with the European Commission, the policy will be fully implemented by 2018. In response, the government has increased general VAT rates and new business clusters have been created to generate new revenue. The 2017 tax reform implements a progressive corporate income tax (CIT) reduction from 21% to 18% in 2018.

The financial sector remains an important driver of economic growth and sustainable development. At the same time, the proportion of cross-border workers to resident workers continues to increase. To expand the national labor force, Luxembourg changed its immigration and naturalization policy in 2017 facilitating naturalization. It now only requires five years of residence (with interruptions) to naturalize. In addition, a new regulation voted on in February 2017 aims to offer investors a residence permit to set up family offices or for asset management.

Nevertheless, the country’s generous welfare model must be reformed to adapt to the reality of reduced public resources. Luxembourg’s long-term fiscal sustainability is moderately secure. In its evaluation of Luxembourg’s Stability Program 2020, the European Commission highlighted concerns over the country’s overly optimistic economic-growth outlook and its inability to address age-related expenditures and resilient growth. Furthermore, in 2017 industrial output dropped by 0.9%, indicating considerable diversification deficiencies within an economy that focuses excessively on finance and banking.

Citations:
Assessment of the 2017 Stability Programme for Luxembourg. European Commission, 2017. www.ec.europa.eu/info/files/assessment-2017-stability-programme-luxembourg_en. Accessed 11 Dec. 2017
“Bilan compétivité 2017.” Ministère de l´Économie 2017. www.gouvernement.lu/7470599/ppe-033-fr. Accessed 21 Dec. 2017.

Borec, Crtomir. “EU: 2015 VAT changes to eservices – the “keep it simple” edition.” PricewaterhouseCoopers, 17 Jan. 2013, ebiz.pwc.com/2013/01/eu-2015-vat-changes-to-eservices-the-keep-it-simple-edition/. Accessed 21 Feb. 2017.

Fiscal Sustainability Report 2015. European Commission, 2016. www.ec.europa.eu/economy_finance/publications/eeip/pdf/ip018_en.pdf. Accessed 21 Feb. 2017.

“LUXEMBOURG FINANCIAL SECTOR ASSESSMENT PROGRAM.” International Monetary Fund 2017. www.mf.public.lu/publications/imf_article_iv/cr17255.pdf. Accessed 21 Feb. 2017.

“International LPI Global Ranking.” The World Bank, lpi.worldbank.org/international/global/2014. Accessed 21 Feb. 2017.

“Luxembourg Cluster Initiative.” Luxinnovation, en.luxinnovation.lu/Services/Luxembourg-Cluster-Initiative. Accessed 21 Feb. 2017.

National plan for smart, sustainable and inclusive growth – Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2017. www.gouvernement.lu/6854313/2017-pnr-luxembourg-fr. Accessed 29 Dec 2017.

“Observatoire de la compétitivité.” Le portal de l’actualité gouvermentale, www.gouvernement.lu/odc. Accessed 21 Feb. 2017.

“Tableau de bord national compétitivité.” le portal de l’actualité gouvermentale, www.gouvernement.lu/4108652. Accessed 21 Feb. 2017.

“Telecommunications, broadcasting & electronic services.” European Commission, www.ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services_en#new_rules. Accessed 21 Feb. 2017.

Global Competitiveness Index. World Economic Forum. https://www.weforum.org/reports/the-global-competitiveness-report-2017-2018. Accessed 11 Dec. 2017.

Grand-Duché de Luxembourg.” OECD 2017.
www.oecd.org/tax/treaties/beps-mli-position-luxembourg.pdf

“Worldwide Tax Summaries. Corporate Taxes 2017/18”
pwc.com/gx/en/tax/corporate-tax/worldwide-tax-summaries/pwc-worldwide-tax-summaries-corporate-taxes-2017-18.pdf. Accessed 11 Dec. 2017.

Labor Markets

#9

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
8
During the first semester of 2017, 412,830 people were employed in Luxembourg. Almost all of them (93%) have a permanent employment contract. Only 5% hold a temporary employment contract and 2% are temporary workers. Nevertheless, the labor market is agile, especially with regard to the number of foreign workers. Compared to the same period in 2016, 13,508 new permanent employees were paying compulsory social security contributions. The job market is very volatile. As a result, from June 2016 to June 2017, 145,830 employees were recruited in Luxembourg, compared to 131,550 terminated contracts. Only about 20% of new jobs are occupied by nationals and the employment rate of migrants is higher than that of Luxembourgers. Workers from the other Greater Region countries (Belgium, France and Germany) are particularly prominent. Furthermore, thanks to its continuous economic growth, Luxembourg has seen a steady increase in jobs (with an increase of 3.2% in 2017).

Luxembourg’s economy is dominated by the financial and service sectors. 71% of employees work in the service sector and only 6% in the industrial sector. About 10% of employees work for the state and municipalities, while 12% of the total workforce work in the financial sector. The banking sector generates about 20% of government revenue. When including indirect taxes, such as income taxes paid by banking sector employees, the overall contribution by financial institutions (direct & indirect) accounts for about 30% of government revenue. This highlights the importance of financial services to public spending.

The ongoing restructuring of the employment agency has had a positive impact. Due to steady population growth driven by a high inflow of economic migrants and corresponding national job growth, the unemployment rate fell under 6% in October 2017. In the same period, less than 16,000 people (6% less than last year) were reported to be seeking employment. Among the unemployed population, 44.7% (47.7% in 2016) had been out of work for longer than 12 months and 38.3% were considered to have low levels of education. About 3,000 foreign unemployed cross-border workers, benefiting from their residence in Luxembourg, are recorded separately.

The employment rate among workers aged 55 or older was 39.6% in 2016, far below the EU average of 55.3% and the government’s own target. This situation is exacerbated by numerous incentives for older workers to leave the labor market early. About 5,000 people took part in reintegration and training programs in October 2017. However, such measures are only initial steps, as unemployment cannot be reduced substantially in the absence of long-term opportunities. Training programs must lead to permanent jobs. While 90% of the government’s budget for activation policies is directed towards employment incentives, only 10% of it is used for training and education. Because of this, the government has indicated that it intends to strengthen training measures for the unemployed.

Citations:
“Erwerbstätigenquote älterer Erwerbstätiger.” Eurostat, www.ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdde100. Accessed 14 Oct. 2017.

“Buletin de l’emploi 10/2017.” www.adem.public.lu/fr/actualites/adem/2017/11/bulletin-emploi-oct-2017/index.html. Accessed 13 Oct. 2017. Accessed 14 Dec. 2017.

“Tableau de bord du marché du travail luxembourgeois“ www.adem.public.lu/fr/publications/faits-et-chiffres/2017/Tableau_de_bord_juin_2016_juin2017/Tableau_de_bord_juin2016_juin2017.pdf. Accessed 14 Dec. 2017.

National plan for smart, sustainable and inclusive growth – Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2017. www.gouvernement.lu/6854313/2017-pnr-luxembourg-fr. Accessed 14 Dec 2017.


“Observatoire de la compétitivité.” Le portal de l’actualité gouvermentale, Accessed 21 Dec. 2017.

Taxes

#6

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
7
Over the last years, Luxembourg has struggled under new EU and OECD tax regulations that make it difficult for the country to maintain its largely secret and advantageous tax deals for companies. However, after a series of delaying tactics, the country accepted the new international transparency rules, seeking to avoid greater damage to Luxembourg’s role as a financial center.

In 2016, most global players in the country had negotiated positions that exempted them from corporate income taxes (2017: 19%), municipal business taxes (6.75%), a special contribution (solidarity surtax 7%), and net wealth taxes (0.5%). More than 50,000 companies had negotiated tax deals with the government which allowed them to channel profits through Luxembourg and to reduce their overall tax obligations. The EU penalty payments of Fiat Chrysler, Starbucks and the European headquarters of Amazon (with 1,500 employees, one of the big players in Luxembourg) were unexpectedly beneficial for Luxembourg as the penalty payments (totaling €250 million) land with the state treasury. To clarify the principle of legal certainty, Luxembourg appealed to the European Court of Justice against the ruling.

The effects of these proceedings and ongoing audits under the new rules will have a major impact on state revenues over the long term. The EU and OECD are working toward harmonizing the tax systems of EU member states. After being listed as a tax haven in 2013, the Global Forum removed Luxembourg from its blacklist in October 2015.

In 2015, the European Commission implemented new e-commerce rules for the EU, which state that value added tax is payable in the country in which the services are carried out or the product is sold, effectively undermining Luxembourg’s business-friendly e-commerce VAT regime. To boost public finances, Luxembourg has implemented new tax rates. Several tax rates were increased, including the general VAT (from 15% to 17%). The higher VAT rate and low interest rates will lead to a slight increase in the inflation rate (about 1.7% in 2017). Nevertheless, Luxembourg continues to have the lowest VAT rate in Europe.

Important milestones during the period under review include a major tax reform in 2017, which focused on harmonizing individual (including cross-border worker) taxation with higher allowances (pension plans and so-called bausparvertrags) to increase second earners. The government implemented a corporate tax system and a restructuring program to attract more foreign investment. In 2015, the process of declaring VAT was simplified by the introduction of an electronic system. Long-outstanding tax arrears were used to consolidate the 2017 budget. Despite losses in e-commerce (-€225 million in 2017) and tax reform cuts, CIT arrears and an early 2017 index tranche are compensating lost tax revenues.

Luxembourg is known for its fast framework conditions and flexibility in global competition. For example, in 2014 Luxembourg introduced a freeport (VAT free zone) at Luxembourg airport and reduced tax rates by 8% on imports and intra-EU acquisitions of antiques, art, and collectibles. In 2016, Bitstamp opened the first EU compliant cryptocurrency exchange in Luxembourg. In addition, Google may open a new €1 billion data center in Luxembourg. Luxembourg, as an early adopter, has covered another niche product, so-called “asteroid mining,” offering a regulatory-legal business framework. While this may sound very futuristic, Spire Global has already announced plans to open a European headquarters in Luxembourg with 250 employees, with strong support from the Luxembourg Future Fund.

Luxembourg’s financial center (mostly foreign-owned) is the most important locus of the so-called renminbi trade. Luxembourg’s global fund management industry is the second most important location for investment funds worldwide after the United States. In October 2017, the Luxembourg investment fund industry was home to €4,135 trillion in net assets (€3,664 trillion in Oct. 2016), with 4,098 funds, including 14,711 fund units. Following a massive slump in the previous year, Luxembourg’s investment funds deposits increased by 9.8% since January 2017. Furthermore, Luxembourg is the European leader for responsible investment fund management. Overall, the number of employees in the financial sector rose from 45,097 in 2016 to 47.411 in June 2017.

The PwC 2017 business report ranked Luxembourg in top place. The total tax rate (TTCR), after deductions and exemptions, is currently 20.5%. This is the lowest total tax rate among European and European Free Trade Association (EFTA) countries, before Croatia (20.6%) and Cyprus (22.7%). Luxembourg’s taxation system is very attractive for businesses with only 20% of companies paying business taxes. In 2012, property taxes accounted for 1.3 % of GDP and represented 3.3 % of tax revenue. At 0.1% of GDP, Luxembourg’s recurrent property taxes is the third lowest by GDP share among EU member countries after Malta and Croatia. However, in terms of administration, Luxembourg and Cyprus lag behind other OECD countries.

Luxembourg has the highest capital-tax-to-GDP ratio among EU member states. This demonstrates the size and systemic importance of the financial sector in Luxembourg. To maintain the competitiveness of the financial sector, the government has decided not to introduce the Tobin tax on financial transactions. Following international standards on tax competition, Luxembourg has reduced the corporate tax by 2% to 19% in 2017 with a reduction to 18% in 2018. Meanwhile, higher personal tax allowances and income tax reductions will benefit middle class taxpayers.

Citations:
18th Update of the Stability and Growth Programme of the Grand Duchy of Luxembourg for the 2017 – 2021 Period. Le gouvernement du Grand-Duché de Luxembourg, 2017. www.mf.public.lu/publications/programme/18th_update_stability_growth_programme.pdf. Accessed 14 Dec. 2017.

“General government gross debt.” Eurostat, www.ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=teina225&language=en. Accessed 14 Dec. 2017.

“ Bitstamp Moves to Luxembourg.” www.news.bitcoin.com/bitstamp-luxembourg-nationally-compliant. Accessed 14 Dec. 2017.

“Le journaliste au coeur de Luxleaks.” Luxemburger Wort 23. Nov. 2017, www.wort.lu/de/business/portrait-le-journaliste-au-coeur-de-luxleaks-5a159fe5c1097cee25b77aef. Accessed 23 Dec. 2017.

“Luxembourg opens art freeport to lure super-rich.” Reuters, 17 Sept. 2014, www.reuters.com/article/art-luxembourg-idUSL6N0RI3CI20140917. Accessed 14 Dec. 2017.

“Luxembourg.” Alfi.lu, 12 Dec. 2017, www.alfi.lu/sites/alfi.lu/files/ALFI-REIF-Survey-November-2017.pdf. Accessed 12 Dec. 2017.

“Luxleaks.” Europaforum.lu, 1 Jan. 2017, www.europaforum.public.lu/fr/actualites/2017/01/gouv-rescrits-regles/index.html?highlight=Luxleaks%222017. Accessed 14 Dec. 2017.

National plan for smart, sustainable and inclusive growth – Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2017. www.gouvernement.lu/6854313/2017-pnr-luxembourg-fr. Accessed 14 Dec 2017.

OECD Economic Surveys Luxembourg. OECD Publishing, 2017. www.oecd.org/eco/surveys/Luxembourg-2017-OECD-economic-survey-overview.pdf. Accessed 4 Dec. 2017.

“Real GDP growth rate.” Eurostat, www.ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115. Accessed 14 Dec. 2017.

“Réforme fiscale.” Le gouvernement du Grand-Duché de Luxembourg, www.reforme-fiscale.public.lu/fr/index.html. Accessed 21 Feb. 2017.

Tax Memento Luxembourg 2015. Ernst & Young, 2015. www.ey.com/Publication/vwLUAssets/Tax_Memento_2017_-_Print_version/$File/tax_memento_2017-printable.pdf. Accessed 14 Dec. 2017.

“Tax Ruling und Steueroptimierung.” Forum.lu, www.forum.lu/luxembourg-leaks/archiv-zum-thema-tax-ruling-und-steueroptimierung/. Accessed 21 Feb. 2017.

“Total employment in banks, PFS and management companies.” CSSF, 2017. www.cssf.lu/en/supervision/pfs/inv-firm/statistics/quarterly-statistics/employment-if. Accessed 14 Dec. 2017.

“Google-Datenzentrum. Viele Bedingungen bis zum Bau“. www.wort.lu/de/business/google-datenzentrum-viele-bedingungen-bis-zum-bau-5a301e25c1097cee25b7a294?utm_campaign=magnet&utm_source=article_page&utm_medium=related_articles. Accessed 14 Dec. 2017.

“Total employment in banks, Professionals of the Financial Sector (PFS) and management companies.” Association des Banques et Banquiers, Luxembourg, 31 Jan. 2017, www.abbl.lu/en/mediatheque/media?media=53. Accessed 21 Feb. 2017.

NOTE DE CONJONCTURE 2017. Le portail des statistiques, 2017. www.statistiques.public.lu/catalogue-publications/note-conjoncture/2017/PDF-NDC-02-17.pdf. Accessed 21 Dec. 2017.

“Wachstumsrate des realen BIP.” Eurostat, www.ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=tec00115&plugin=1. Accessed 21 Feb. 2017.

“Spire Opens a European HQ in Luxembourg” www.spire.com/company/insights/news/spire-opens-european-hq-luxembourg-raises-addition. Accessed 13 Oct. 2017.

Budgets

#4

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
9
From a position of relatively low public debt and GDP growth, consolidated public debt decreased from 22% of GDP in 2015 to 20.8% of GDP in 2016. However, both investments and national debts are clearly on the rise. The 2017 total public debt will close at 23.5% of GDP, comprising a €2.14 billion government state guarantee resulting from the DEXIA bank bailout in 2008. After five years of fiscal consolidation and high economic growth, the 2018 government budget will include an all-time high deficit of €1.062 billion. Supported by strong population growth and an investment boom, Luxembourg has among the most solid economic growth (along with Malta and Ireland) among the EU member states. The cost of structural investments increased from €1.955 billion in 2015 to €2.229 billion in 2016, an increase of 14%. Public investments increased by €100 million from €2.3 billion in 2017 to €2.4 billion in 2018, stabilized with around 4% of GDP.

The government continues to increase investments in housing, education, and research, which are key drivers of modernization and infrastructure development.
Founded in 1978, the National Company of Credit and Investment (SNCI) holds substantial private sector shares and equity investments (e.g., 11% SES and 10% Cargolux) of €1.419 billion in 2016.

Rising economic output and decreased social protection expenditures led to higher revenues for the national insurance, which closed with a profit of €590 million in 2016. Social protection receipts led to a surplus of social security funds and public participation dropped from 59% in 2008 to a ten-year low of 54% in 2016.

Citations:
2016 Rapport et Bilan. Société Nationale de Crédit et d’Investissement, 2016. https://www.snci.lu/files/75987.pdf. Accessed 21 Dec. 2017.

Assessment of the 2017 Stability Programme for Luxembourg. European Commission, 2017.
ec.europa.eu/info/files/assessment-2017-stability-programme-luxembourg_en
Accessed 11 Dec. 2017.

“De Budget 2016.” Le gouvernement du Grand-Duché de Luxembourg, www.budget.public.lu/lu/budget2016/op-ee-bleck/bref-apercu/index.html. Accessed 21 Feb. 2017.

“De Budget 2017.” Le gouvernement du Grand-Duché de Luxembourg, www.budget.public.lu/lu/index.html. Accessed 21 Feb. 2017.

“Europäische Union: Staatsverschuldung in den Mitgliedsstaaten im 2. Quartal 2017.” Statista, 2017, de.statista.com/statistik/daten/studie/198377/umfrage/staatsverschuldung-in-der-europaeischen-union/. Accessed 21 Dec. 2017.

“Groupe bancaire DEXIA 2011/2013.“ Trésorerie de l’Etat. 2017. www.te.public.lu/fr/garanties_financieres/societes_de_droit_prive/groupe_bancaire_dexia1.html. Accessed 30 Dec. 2017.

“Labour costs per hour in euro, whole economy.” Eurostat, http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Labour_costs_per_hour_in_euro,_whole_economy_(excluding_agriculture_and_public_administration)_T1.png. Accessed 21 Dec. 2017.

National plan for smart, sustainable and inclusive growth – Luxembourg 2020. Le gouvernement du Grand-Duché de Luxembourg, 2017. http://www.gouvernement.lu/6854330/2017-pnr-luxembourg-en.pdf. Accessed 21 Dec. 2017.

NOTE DE CONJONCTURE 2017. Le portail des statistiques, 2017. www.statistiques.public.lu/catalogue-publications/note-conjoncture/2017/PDF-NDC-02-17.pdf. Accessed 21 Dec. 2017.

OECD Economic Surveys Luxembourg. OECD Publishing, 2017. www.oecd.org/eco/surveys/Luxembourg-2017-OECD-economic-survey-overview.pdfAccessed 4 Dec. 2017.

“Propriété intellectuelle.” Le gouvernement du Grand-Duché de Luxembourg, www.luxembourg.public.lu/fr/investir/propriete-intellectuelle/index.html. Accessed 21 Feb. 2017.

Winkin, René. “Die öffentlichen Finanzen aus Sicht des CSDD.” Forum.lu, Mar. 2010, www.forum.lu/pdf/artikel/6751_294_Winkin.pdf. Accessed 21 Feb. 2017.

Research and Innovation

#12

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
8
In its Europe 2020 strategy, Luxembourg set a goal of raising public expenditure on research and innovation to between 2.3% and 2.6% of GDP, of which 0.7 to 0.9 percentage points are earmarked for public use (0.73% in 2015) and 1.6 to 1.7 percentage points earmarked for private research. The overall European goal is 3% of GDP.

Luxembourg supports private research projects: innovation and research can benefit from financial support up to 35%. Private sector innovation can receive grants up to 50% and feasibility studies up to 75%.

Luxembourg has a high proportion of high-skilled workers, with 59.5% of jobs demanding a high level of education or training. More than 40% of the working age population has achieved a tertiary level of education and/or is employed in the science and technology sector. This creates synergies between public research and industry. Luxembourg ranks among the top ten on the Innovation Output subindex and is number 12 in the overall assessment of the 2017 Global Innovation Index (GII).

In the World University Rankings 2017, Luxembourg increased 14 places compared to 2016 and is now ranked 179 out of 1,000 universities. The new Belval campus, designed for 7,000 students, 3,000 researchers and about 6,000 residents, is one of the largest urban conversion projects in Europe. In 2017, more than 1,600 employees, including doctoral candidates and more than 3,100 students were teaching, learning and working in this modern location. The relocation to Belval (with the exception of parts of the Faculty of Law, Economics and Finance) will be completed in 2019. After initially increasing in 2016, the budget of Belval University is now stagnating at the 2017 level. In its 2016 and 2017 evaluation, the OECD recommends better impact control and further investments in the Belval campus.

Citations:
2017 Index of Economic Freedom.” Heritage, www.heritage.org/index/country/luxembourg. Accessed 4 Dec. 2017.

Annuaire de la compétitivité 2016. Union des Entreprises Luxembourgeoises, 2016. www.statistiques.public.lu/catalogue-publications/perspectives-economiques/2016/PDF-31-2016.pdf. Accessed 7 Dec. 2017.

“Compétences hautement qualifiées: Le Luxembourg en tête d’un classement mondial du WEF.” Le portal de l’actualité gouvermentale, 27 Oct. 2015, www.gouvernement.lu/5380237/27-wef. Accessed 21 Feb. 2017.

“Country information – Luxembourg.” European Commission, www.ec.europa.eu/digital-single-market/en/country-information-luxembourg. Accessed 21 Feb. 2017.

“OECD Reviews of Innovation Policy – Luxembourg 2016.” OECD Publishing, 2016. www.dx.doi.org/10.1787/9789264232297-en. Accessed 21 Dec. 2017.

“World University Rankings 2017 – 2018.” Times Higher Education, www.timeshighereducation.com/world-university-rankings/2018/world-ranking. Accessed 21 Dec. 2017.

Digital Luxembourg Progress Report 2017, www.digital-luxembourg.public.lu/en/actualites/about/2017/13072017_-progessreport/index.html. Accessed 2 Dec. 2017.

Global Financial System

#9

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
6
Since the opening and creation of the single European market in the 1970s, Luxembourg has been the most important actor in the European debt capital market, playing a major role in stimulating the international financial architecture.
Luxembourg performed relatively well in the global financial crisis. After saving DEXIA and Fortis, two domestically important banks, tax revenues have begun to rise again in recent years. But as a small country, Luxembourg’s economy remains strongly influenced by the general economic climate and international trends.

Luxembourg is a major financial center, with the banking and financial services industry (non-bank financial institutions), directly and indirectly contributing an estimated 30% to GDP. Consequently, the country was exposed to the effects of the economic crisis within the European Union. Luxembourg’s treatment of offshore accounts and capital deposited by non-resident customers came under international scrutiny during that period. As a consequence, Luxembourg has developed new clusters, such as FinTech (new financial technology), to complement the traditional fields of work of the financial industry.

In the 2017 Index of Economic Freedom, Luxembourg is ranked 14th out of 186 countries. In the 2017 World Bank’s Doing Business report, Luxembourg ranked 59th out of 190 countries (2016: 61), far behind Denmark (3), Germany (17) and France (29). Reflected in these rankings is the perception that Luxembourg has difficulties encouraging the founding of start-ups and creating new professions. In response, Luxembourg set up several opportunities for coworking and created innovation centers to support start-ups.

After climbing two places in 2016, Luxembourg made a swift improvement of 4 places in the 2017 Global Financial Centers Index and ranked 14th out 108 global financial centers, which makes it Europe’s fourth most important financial center after London, Zurich, and Frankfurt, improving rapidly from 19th to 11th place.

Citations:
“2014 Report: Helping Firms Grow.” European Commission, www.ec.europa.eu/growth/industry/competitiveness/reports/eu-competitiveness-report_en. Accessed 21 Dec. 2017.

“Doing Business Report 2017.” World Bank Group 2017.
www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB17-Report.pdf. Accessed 21 Dec. 2017.

European Competitiveness Report 2014. European Commission, 2014. www.ec.europa.eu/DocsRoom/documents/6706/attachments/1/translations/en/renditions/native. Accessed 21 Dec. 2017.

The Global Financial Centres Index 20. Z/Yen Group, 2017. www.longfinance.net/images/gfci/gfci_22.pdf. Accessed 21 Dec. 2017.

Global Competitiveness Index. World Economic Forum. www.weforum.org/reports/the-global-competitiveness-report-2017-2018. Accessed 11 Dec. 2017.

“Luxembourg: Tax reform for 2017, bill submitted to parliament.” KPMG, 29 July 2016, home.kpmg.com/xx/en/home/insights/2016/07/tnf-luxembourg-tax-reform-for-2017-bill-submitted-to-parliament.html. Accessed 21 Dec. 2017.

OECD Economic Surveys Luxembourg. OECD Publishing, 2017. www.oecd.org/eco/surveys/Luxembourg-2017-OECD-economic-survey-overview.pdf. Accessed 4 Dec. 2017.

Sinner, Michèle. “Geplant, geplant, geplant.” Land.lu, 14 Oct. 2011, www.land.lu/page/article/847/4847/FRE/index.html. Accessed 21 Dec. 2017.

“Kristallkugel.” Land.lu, 2 Dec. 2011, www.land.lu/page/article/017/5017/FRE/index.html. Accessed 21 Dec. 2017.

Storck, Ekkehard. Globalisierung und EWU: Der Euromarkt als Finanz-Drehschreibe der Welt. C. H. Beck, 1995.
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